It is estimated that there are 18 deaths for every 10 million people who use airplanes....

It is estimated that there are 18 deaths for every 10 million people who use airplanes. A company that sells flight insurance provides $100,000 in case of death in a plane crash. A policy can be purchased for $1. Calculate the expected value and thereby determine how much the insurance company can make over the long run for each policy that it sells.

The expected value is $_______________________

Expert Solution

P(Death) = 18/10000000 = 0.0000018

Hence,

Expected value = - 0.0000018*($100000 - $1) + (1 - 0.0000018)*($1) = $ 0.82

So the company is expected to make $ 0.82 per policy in the long run.

orchestra answered 2 years ago

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